Waterville Town School District BASIC FINANCIAL STATEMENTS. June 30, 2017

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1 BASIC FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Page INDEPENDENT AUDITOR S REPORT MANAGEMENT S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS: District-Wide Financial Statements: Statement of Net Position 1 Statement of Changes in Net Position 2 Fund Financial Statements: Balance Sheet Governmental Funds 3 Statement of Revenues, Expenditures and Changes In Fund Balances Governmental Funds 5 Statement of Net Position Fiduciary Funds 8 Notes to Basic Financial Statements 9 REQUIRED SUPPLEMENTARY INFORMATION: Budgetary Comparison Schedule General Fund 24 Schedule of Proportionate Share of the Net Pension Liability 26 ADDITIONAL REPORTS Report Report on Internal Control Over Financial Reporting and on Compliance And Other Matters Based on an Audit of Financial Statements Performed In Accordance With Government Auditing Standards 1

3 I<BS Kittell Branagan & Sargent C ertified Public A ccountants Vermont License # 167 INDEPENDENT AUDITOR'S REPORT To the School Board Waterville, Vermont Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the district's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 154 North Main Street, St. Albans. Vermont I P I F

4 Page 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of as of, and the respective changes in financial position, for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information on pages and the schedule of proportionate share of the net pension liability on page 26 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Going Concern As disclosed in Note 13, the voters of Belvidere Town School District, Eden Town School District, Hyde Park Town School District, Johnson Town School District, Lamoille Union High School District #18 and Waterville School District authorized the creation of a Unified School District, encompassing each of the districts. The pre-existing school districts halted governance operations and ceased to exist upon the close of business on. All assets, debts, and liabilities of each district were transferred to the Unified School District as of. Other Reporting Required by Government AudWng Standards In accordance with Government Auditing Standards, we have also issued our report dated October 20, 2017, on our consideration of the 's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Waterville Town School District's internal control over financial reporting and compliance. k dhjl!2 ~ f-g ~~--- St. Albans, Vermont October 20, 2017

5 MANAGEMENT S DISCUSSION AND ANALYSIS MANAGEMENT'S DISCUSSION AND ANALYSIS Our discussion and analysis of Waterville School District financial performance provides an overview of the District's financial activities for the fiscal year ended. Please read it in conjunction with the District's financial statements. Brief Discussion of the Basic Financial Statements: Using This Annual Report This annual Report consists of a series of financial statements. The Statement of Net Position and the Balance Sheet Governmental Funds provide information about the activities of the District as a whole, and present a longer-term view of the District s finances. Fund financial statements such as the Statement of Activities follow under the Notes section of the Report. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the District s operations in more detail than the government-wide statements by providing information about the District s most significant funds. The Statement of Net Position - Fiduciary Funds provide financial information about activities for which the District acts solely as a trustee or agent for the benefit of those outside of the government. The District Administration is responsible for establishing an accounting and internal control structure designed to ensure that the physical, data, informational, intellectual and human resource assets of the District are protected from loss, theft and misuse, and to ensure that adequate accounting information is maintained and reported in conformity with generally accepted accounting principles (GAAP). Additionally, management strives to ensure that these assets are put to good and effective use. The internal control structure is designed to provide reasonable, but not absolute, assurances that these objectives are attained. The concept of reasonable assurance recognizes that: (1) the cost of any control should not exceed the benefit likely to be derived; (2) the valuation of cost and benefits requires judgments by management. Reporting the District as a Whole One of the most important questions asked about the District's finances is, "Is the District as a whole better off or worse off as a result of the year's activities?" The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. The Statement of Net Position reports the District's net assets and changes in them. You can think of the District's net assets - the difference between assets and liabilities - as one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the District's student enrollment and the condition of the District's infrastructure, to assess the overall health of the District. In the Statement of Net Position and the Statement of Activities, the District's activities are classified solely as governmental activities:

6 MANAGEMENT S DISCUSSION AND ANALYSIS Governmental activities - The District s basic services are reported here, including: instructionregular education and special education; supporting education services; operation and maintenance; transportation; administration; and debt service. These activities are further broken down between General Fund and Special Revenue. o General Fund Activities These are the basic core activities of the District student education. These activities are also supported primarily by property taxes. o Special Revenue Activities These are special purpose activities that are supported by grant funds. These activities may support the core mission of the District, but the activities are being provided because other funds are available to pay for them. In most cases, special revenue activities would not be provided if grant funding were not available. Analysis of Overall Financial Information: ASSETS FY16 FY17 % Change Current Assets $ 202,615 $ 132, % Capital Assets $ 850,078 $ 841, % TOTAL ASSETS $ 1,052,693 $ 974, % FY 17 Revenues LIABILITIES FY16 FY17 % Change Current Liabilities $ 85,951 $ 60, % Long-Term Liabilities $ - $ - TOTAL LIABILITIES $ 85,951 $ 60, % NET ASSETS FY16 FY17 % Change Invested in Capital $ 800,078 $ 841, % Unrestricted $ 166,664 $ 72, % TOTAL NET ASSETS $ 966,742 $ 914, % Revenues in FY17 were less than FY16 by $63,563 and under budget by $141,043. The primary reason for this decline in revenue is in the area of Tuition. Belvidere Central School District tuitions all of their elementary students to the Waterville Elementary School District. Belvidere student numbers came in lower than last year resulting in a $115,324 decrease in tuition FY16 to FY17. FY17 tuition was under budget by $101,530. This revenue short fall was known early in the school year and as a result a budget freeze went into effect.

7 MANAGEMENT S DISCUSSION AND ANALYSIS FY 17 Budget to Actual Expenditures The Schools expenditures for FY17 of $1,676,248 were lower than FY16 by $54 and under-budget by $11,367. While special education and transportation expenses decreased, because these services were consolidated to LNSU, administration costs increased due to the increased assessment as a result of these shifted costs. Operations and Maintenance also increased in FY17 due to much needed work on the boilers and repairs in the kitchen. Change in General Fund Balance: Beginning Fund Balance 6/30/16 Excess (Deficiency) of Revenues over Expenditures Fund Balance 6/30/17 $166,664 ($94,231) $72,433

8 MANAGEMENT S DISCUSSION AND ANALYSIS The total accumulated fund balance reflects the following: $1,300 Nonspendable for Prepaid expenses $10,195 Committed for FY 18 Expenses $46,233 Committed for FY 18 Capital Expenditures $49,525 Committed for Capital Projects Fund 401 ($34,820) - Unassigned Capital Assets: As required under Governmental Accounting Standards Board #34, the District is reporting its capital assets as part of the financial statements. The District has researched and documented the historical costs of the various assets owned by the District and applied appropriate charges against the cost to record depreciation. Note 10 of the Report details the status of the District s net capital assets. Description Beginning Balance 6/30/16 Increase/Decrease Balance - 6/30/17 Land $67,000 $0 $67,000 Depreciable Assets $1,520,592 $42,000 $1,562,592 Accumulated Depreciation ($737,514) ($50,223) ($787,737) Net Assets $850,078 ($8,223) $841,855 Long-Term Debt: The District has two categories of long-term debt, defined as Bond Payables and Termination Benefits Payable. At the District had no outstanding bond payments. The last payment of $50,000 and interest was paid on 12/01/2016. Teacher retirement has changed to a "cost-sharing" benefit between the district and the state retirement system. Note 5 outlines in detail that change, the actuarial assumptions used, and their impact on the district. Current Issues: Collective Bargaining Agreements: All Collective Bargaining Agreements expired on 06/30/2017. New 2 year agreements have been ratified as of December 2017, set to expire June of 2019

9 MANAGEMENT S DISCUSSION AND ANALYSIS Consolidation Efforts: Act 153 & Act 156 are provisions in laws that consolidate some functions to the Supervisory Union and offers incentives for districts to consolidate. Some of the consolidation implementations, such as those in special education and transportation took place July 1, Since Vermont law prohibits supervisory unions from borrowing or owning real estate, some of the more practical approaches to transferring areas of responsibility to the LNSU have been challenging. Subsequently, the legislature passed Act 46 in May, 2015 that provides incentives for consolidation that lowers the tax impact on districts if they voluntarily consolidate as a single district. LNSU established a committee to look at the possibility and impact of consolidating. A vote of its' citizenry was held on April 12, The towns of Eden, Belvidere, Johnson and Hyde Park voted to consolidate into one school district. The town of Waterville voted to join the consolidated district on April 25, Cambridge voted to not participate in the consolidation. Effective July 1, 2017, Waterville Elementary School will operate as a member of the Lamoille North Modified Unified Union School District. Enrollment: Like many of Vermont s school districts, the Waterville School District has experienced a decrease in student enrollment. Any decrease is of concern however as the state evaluates costs and numbers of students in their school systems. Waterville s equalized pupil count (EPC) for all resident students both elementary and secondary has decreased and is projected to continue to decrease in the near future. FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY2016 FY Property taxes in Vermont are set by calculation of total budgeted cost per equalized pupil in each locale and then adjusted by the local common level of appraisal (CLA). A CLA of over 100% has the effect of lowering the tax rate and a CLA under 100% has the effect of increasing the tax rate. As property value increases, the CLA goes down until a locale does a property reassessment and this has the effect of increasing the property tax rate. A slowing economy started in the fall of 2008 and poor sales had the effect of raising the CLA and decreasing the tax rate.

10 MANAGEMENT S DISCUSSION AND ANALYSIS The effect of the Common Level of Appraisal (Vermont s adjustment factor to bring a town s appraised values to fair market values) on Waterville s final tax rate has greatly affected Waterville taxes as their real estate market tends to fluctuate dramatically due to the small sample size of the region. Common Level of Appraisal C.L.A. FY09: 78.75% Common Level of Appraisal C.L.A. FY10: 64.84% Common Level of Appraisal C.L.A. FY11: 79.20% Common Level of Appraisal C.L.A. FY12: 83.51% Common Level of Appraisal C.L.A. FY13: 90.86% Common Level of Appraisal C.L.A. FY14: 92.28% Common Level of Appraisal C.L.A. FY15: 87.70% Common Level of Appraisal C.L.A. FY16: 91.12% Common Level of Appraisal C.L.A. FY17: 88.35% Statewide, since the economic downturn, Waterville has experienced less volatile fluctuations in unemployment than surrounding communities with levels reaching 8.7% in March 2010, and rebounding to 5.0% in June However, with an unemployment rate of 4.7% at November 2017, Waterville continues to lag behind Lamoille County at 3.7% and the State of Vermont at 2.7% as of November Due to space issues, the Waterville Elementary School leases space from Belvidere Central School for the Preschool program. The Waterville School District is a member of the Lamoille Union School District #18 (LUSD #18). Waterville sends all of its secondary students to LUSD #18. LUSD #18 includes the Green Mountain Technology & Career Center. Contact for Further Information: This financial Report is designed to provide citizens, taxpayers, and creditors with a general overview of the District s finances and to reflect the District s accountability for the monies it receives. Questions about this Report or additional financial information needs should be directed to Catherine Gallagher, Superintendent of Schools, 96 Cricket Hill Road, Hyde Park, VT 05655, at or cgallagher@lnsu.org.

11 DISTRICT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION ASSETS Governmental Activities CURRENT ASSETS Cash $ 79,637 Other Receivables 51,605 Prepaid expenses 1,300 TOTAL CURRENT ASSETS 132,542 CAPITAL ASSETS, net 841,855 TOTAL ASSETS $ 974,397 LIABILITIES AND NET POSITION CURRENT LIABILITIES Accounts Payable and Accrued Liabilities $ 13,976 Due to LNSU 39,435 Accrued Salaries and Taxes 2,685 Unearned Revenue 3,683 Due to Other Funds 330 TOTAL CURRENT LIABILITIES 60,109 NET POSITION Net Investment in Capital Assets 841,855 Unrestricted 72,433 TOTAL NET POSITION 914,288 TOTAL LIABILITIES AND NET POSITION $ 974,397 See Accompanying Notes to Basic Financial Statements 1

12 DISTRICT-WIDE FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET POSITION For the Year Ended Net (Expense) Revenue and Changes in Program Revenues Net Position Operating Capital Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Revenues Revenues Activities Governmental activities: Instruction Services $ 607,453 $ 363,944 $ 998,401 $ - $ 754,892 Special Education 114,568 18, ,759-48,431 Preschool Services 102, (102,812) Guidance Services 36, (36,412) Health and Psychological Services 19, (19,677) Speech and Other Services 50, (50,496) Improvement of Instruction 40, (40,724) Educational Media Services 21, (21,762) Board of Education Services 12, (12,352) District Treasurer Services 1, (1,706) Legal, Audit and Negotiation Services 1, (1,192) Superintendent's Office 132, (132,516) Principal's Office 165, (165,525) Fiscal Services 5, (5,428) Maintenance of Plant and Projects 143, (143,451) Pupil Transportation 103,451-42,223 - (61,228) Food Service 45,391 12,688 18,694 - (14,009) Computer Technology 32, (32,337) EEE Expenditure 172-6,937-6,765 Depreciation: Unallocated 50, (50,223) Total governmental activities $ 1,687,648 $ 394,872 $ 1,211,014 $ - (81,762) General revenues/expenses: Unrestricted investment earnings 6,408 Miscellaneous 22,900 Total general revenues/(expenses) 29,308 Change in net position (52,454) Net Position, beginning 966,742 Net Position, ending $ 914,288 See Accompanying Notes to Basic Financial Statements 2

13 FUND FINANCIAL STATEMENTS BALANCE SHEET - GOVERNMENTAL FUNDS Governmental Fund Types Capital General Projects Fund Fund Total ASSETS ASSETS Cash $ 79,637 $ - $ 79,637 Due from Other Funds - 49,525 49,525 Other Receivables 51,605-51,605 Prepaid Expenses 1,300-1,300 TOTAL CURRENT ASSETS $ 132,542 $ 49,525 $ 182,067 LIABILITIES AND FUND BALANCE LIABILITIES Accounts Payable and Accrued Liabilities $ 13,976 $ - $ 13,976 Due to LNSU 39,435-39,435 Accrued Salaries and Taxes 2,685-2,685 Deferred Revenue 3,683-3,683 Due to Other Funds 49,855-49,855 TOTAL LIABILITIES 109, ,634 FUND BALANCES Nonspendable 1,300-1,300 Committed 56,428 49, ,953 Unassigned (34,820) - (34,820) TOTAL FUND BALANCE 22,908 49,525 72,433 TOTAL LIABILITIES AND FUND BALANCE $ 132,542 $ 49,525 $ 182,067 See Accompanying Notes to Basic Financial Statements 3

14 FUND FINANCIAL STATEMENTS BALANCE SHEET - GOVERNMENTAL FUNDS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total fund balances - governmental funds $ 72,433 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Capital Assets 1,629,592 Accumulated Depreciation (787,737) Total net position - governmental activities $ 914,288 See Accompanying Notes to Basic Financial Statements 4

15 FUND FINANCIAL STATEMENTS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS For the Year Ended Governmental Fund Types Capital General Projects Fund Fund Total REVENUES State Revenue $ 1,046,616 $ - $ 1,046,616 Federal Revenue 141, ,068 Other Grants 1,250-1,250 Tuition 352, ,232 Services to Other LEA's 21,320-21,320 Medicaid Reimbursement 3,386-3,386 Food Service 31,383-31,383 Interest Income 6,408-6,408 Miscellaneous 29,811-29,811 TOTAL REVENUES 1,633,474-1,633,474 EXPENDITURES Instruction Services 534, ,064 Art 10,865-10,865 Physical Education 21,174-21,174 Music 37,857-37,857 Special Education - Elementary 114, ,568 Pre-School 102, ,812 Guidance Services 36,412-36,412 Health and Psychological Services 14,564-14,564 Speech and Other Services 54,919-54,919 Improvement of Instruction 40,722-40,722 Educational Media Services 21,762-21,762 Board of Education Services 12,352-12,352 District Treasurer Services 1,940-1,940 Co-Curricular 3,493-3,493 Legal, Audit and Negotiation Services 1,192-1,192 Superintendent's Office 132, ,284 Principal's Office 166, ,216 Fiscal Services 5,428-5,428 Maintenance of Plant and Projects 133, ,940 Pupil Transportation 103, ,451 Food Service 45,391-45,391 Computer Technology 32,337-32,337 See Accompanying Notes to Basic Financial Statements 5

16 FUND FINANCIAL STATEMENTS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS For the Year Ended Governmental Fund Types Capital General Projects Fund Fund Total EXPENDITURES (continued) Debt Service 48,278-48,278 EEE Expenditure Construction Costs - 51,511 51,511 TOTAL EXPENDITURES 1,676,194 51,511 1,727,705 EXCESS/(DEFICIENCIES) OF REVENUES OVER/(UNDER) EXPENDITURES (42,720) (51,511) (94,231) OTHER FINANCING SOURCES/(USES) Transfers (31,450) 31,450 - NET CHANGE IN FUND BALANCE (74,170) (20,061) (94,231) FUND BALANCE, Beginning of Year 97,078 69, ,664 FUND BALANCE, End of Year $ 22,908 $ 49,525 $ 72,433 See Accompanying Notes to Basic Financial Statements 6

17 FUND FINANCIAL STATEMENTS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GENERAL FUND For the Year Ended RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF CHANGES IN NET POSITION Total net change in fund balances - governmental funds $ (94,231) Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Depreciation Expense (50,223) Capital Outlays 42,000 Repayment of bond and note principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. 50,000 Change in net position of governmental activities $ (52,454) See Accompanying Notes to Basic Financial Statements. 7

18 FUND FINANCIAL STATEMENTS STATEMENT OF NET POSITION - FIDUCIARY FUNDS Fiduciary Fund Types Agency Funds ASSETS ASSETS Due from Other Funds $ 330 LIABILITIES AND NET POSITION LIABILITIES Due to Student Groups $ 330 See Accompanying Notes to Basic Financial Statements 8

19 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity All operations of the School District are controlled by a three member School Board, elected in Town-wide elections, and responsible for all of the School District s activities. The financial statements include all of the School District s operations controlled by the School Board. Based on criteria for determining the reporting entity (separate legal entity and fiscal or financial dependency on other governments), the School District is considered to be an independent reporting entity and has no component units. District-wide and Fund Financial Statements The district-wide financial statements (i.e., the statement of net position and the statement of changes in net assets) report information on all of the non-fiduciary activities of the School District. For the most part, the effect of interfund activity has been removed from these statements. The statement of activities demonstrates the degree to which the direct expense of a given program is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. Program revenues include 1) charges to students or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds even though the latter are excluded from the district-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. Measurement focus, basis of accounting, and financial statement presentation The district-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, early retirement, arbitrage rebates, and post-employment healthcare benefits, are recorded only when payment is due. 9

20 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property taxes (state education and local share) and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the School District receives cash. The School District reports the following major governmental funds: * The general fund is the School District s primary operating fund. It accounts for all financial resources of the School District, except those required to be accounted for in another fund. Private-sector standards of accounting, and financial reporting issued prior to December 1, 1989, generally are followed in the government-wide financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Amounts reported as program revenues include 1) charges to students for tuition, fees, rental, material, supplies, or services, provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all property taxes (state education and local share). Budgetary Data Budgets are presented on the modified accrual basis of accounting for all governmental funds. Budgets are not adopted on a School District level for the trust fund. All annual appropriations lapse at fiscal year-end with the exception of those indicated as a fund balance reserve. Annual operating budgets are adopted each fiscal year through the passage of an annual budget ordinance and amended as required. Negative variances in total revenues and the positive variances in total expenditures are largely a result of federal and state program revenues and related expenditures that do not have a direct impact on the undesignated fund balance. Budgets generally assume the expenditure of all available resources. Therefore, when the budget is prepared, it is assumed these funds will not have a carryover of revenue to a subsequent year. Program revenue received but not spent is restricted and deferred to the subsequent fiscal year. As a result, overall fund revenues variances will be negative and overall fund expenditures variances will be positive. Deposits and Investments The School District s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Capital Assets Capital assets are property owned by the School District and include computers, computer equipment, and peripherals: equipment such as vehicles, machinery, copiers, and office equipment; buildings and land: and infrastructure such as roads, bridges, tunnels, rights of way, and culverts. 10

21 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) General capital assets should be capitalized and recorded when all of the following criteria are met: (1) The asset is tangible and complete. (2) The asset is used in the operation of the School District s activities. (3) The asset has a value equal to or greater than $5,000 and a useful life of more than one year, at the date of acquisition All general capital assets must be recorded at either historical cost or estimated historical cost. Assets acquired through donation will be recorded at their estimated fair market value on the date of donation. In addition to purchase price or construction cost, costs of capitalization may include incidental costs, such as bond interest and issuance cost, insurance during transit, freight, duties, title search, title registration, installation, and breaking-in costs. The straight line depreciation method will be used with lives recommended by the Association of School Business Officials (ASBO). Interfund Receivables and Payables The district generally maintains one cash account in the General Fund to pay expenditures and receive payments for efficiency. All interfund balances resulted from the time lag between the dates that (1) reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) repayments between funds are made. Long-term Obligations In the district-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the applicable statement of net assets. Property Taxes Property taxes are due and payable on October 5th. The Town prepares the bills and collects all taxes and then remits them to the School District. Government Wide Net Position Government-wide Net Position is divided into the following components: Net Investment in Capital Assets consist of the historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets. Restricted net position consist of net assets that are restricted by the District s creditors, by enabling legislation, by grantors (both federal and state), and / or by contributors. Unrestricted all other net position reported in this category 11

22 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Governmental Fund Balance Effective July 1, 2010, the District adopted the provisions of GASB 54, Fund Balance Reporting and Governmental Fund Type Definitions. In the governmental fund financial statements, fund balances are classified as follows: Restricted Amounts that can be spent only for specific purposes because of laws, regulations, or externally imposed conditions by grantors or creditors. Committed Amounts that can be used only for specific purposes determined by a formal action by the School Board. Assigned Amounts that are designated by management for a particular purpose. Unassigned All amounts not included in other classifications. Nonspendable Amounts that cannot be spent because they are not spendable in form or are legally or contractually required to be maintained intact When both restricted and unrestricted resources are available for use, it is the School District s policy to use restricted resources first, then unrestricted resources as they are needed. For unrestricted amounts of fund balance, it is the district s policy to use the fund balance in the following order, (1) Committed, (2) Assigned, (3) Unassigned. Estimates The preparation of financial statements in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Concentration of Risk is a public school district located in the Town of Waterville. The District receives the majority of its revenues from property taxes assessed on residences of the Town. Additionally, the District receives revenues from the State of Vermont as Federal and State aid to education and as special education grants. Inventories Inventories consist of food and supplies for the food service program and are valued at cost on a first-in, first-out basis. NOTE 2 CASH, INVESTMENTS AND CATEGORIES OF RISK The District authorizes the Treasurer to invest excess cash in bank accounts (ex: certificates of deposits), obligations of the U.S. Treasury, commercial paper, corporate bonds and repurchase agreements. 12

23 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2 CASH, INVESTMENTS AND CATEGORIES OF RISK (continued) The cash deposits in the School District accounts as of consisted of the following: Book Balance Bank Balance Insured (FDIC) $ 79,637 $ 250,000 Collateralized - 69,847 TOTAL $ 79,637 $ 319,847 The difference between the book balance and the bank balance is due to reconciling items such as deposits in transit and outstanding checks. As of all funds are fully insured by the FDIC. NOTE 3 SHORT-TERM OBLIGATIONS The School District s revenue anticipation note activity, including amount outstanding and interest rate, is as follows: Beginning Ending Balance Increases Decreases Balance 2.8% Revenue Anticipation Note $ - $ 194,405 $ (194,405) $ - NOTE 4 LONG-TERM DEBT The District had the following long-term debt at : Beginning Ending Current Balance Additions Deletions Balance Portion Vermont Municipal Bond Bank, annual principal payments of $50,000 with interest due semiannually on June 1st and December 1st, ranging from 3.993% to 6.093%, paid in full on Dec. 1, 2016 $ 50,000 $ - $ 50,000 $ - $ - 13

24 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT Information Required Under GASB Statement No. 68 Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions requires employers participating in a cost-sharing, multipleemployer defined benefit pension plan to recognize their proportional share of total pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense. The schedules below have been prepared to the s proportional share of the overall amounts of the Vermont State Teachers' Retirement System (VSTRS) plan. s portion has been allocated based on s proportional share of employer contributions to the total contributions to VSTRS during the fiscal year. Reporting Date, Measurement Date, and Valuation Date Net pension liabilities, deferred pension outflows of resources, deferred pension inflows of resources, and pension expense are all presented as of the s reporting date () and for the s reporting period (the year ended ). These amounts are measured as of the measurement date and for the measurement period (the period between the prior and current measurement dates). GASB Statement No. 68 requires that the current measurement date be no earlier than the end of the employer s prior fiscal year. For the reporting date of, the State has chosen to use the end of the prior fiscal year (June 30, 2016) as the measurement date, and the year ended June 30, 2016 as the measurement period. The total pension liability is determined by an actuarial valuation performed as of the measurement date, or by the use of update procedures to roll forward to the measurement date amounts from an actuarial valuation as of a date no more than 30 months and 1 day earlier than the employer s most recent fiscal year-end. The State has elected to apply update procedures to roll forward amounts from an actuarial valuation performed as of June 30, 2015, to the measurement date of June 30, Schedule A Employers Allocation as of June 30, 2015 Fiscal Year Ended June 30, 2015 Total Plan Allocated Employer Pension Fiduciary Net Pension Contribution Proportion Liability Net Position Liability $ 64, % $ 2,523,035 $ 1,468,812 $ 1,054,223 Fiscal Year Ended June 30, 2015 Net Pension Net Pension Total Total Liability 1% Liability 1% Deferred Deferred Decrease Increase Outflows Inflows (6.95% Disc Rate) (8.95% Disc Rate) $ 133,657 $ (11,574) $ 1,338,673 $ 815,594 14

25 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT (continued) Schedule B Employer s Allocation as of June 30, 2016 Fiscal Year Ended June 30, 2016 Portion of Total Plan State Employer Pension Fiduciary Net Pension Contibution Proportion Liability Net Position Liability $ 63, % $ 2,552,441 $ 1,411,827 $ 1,140,614 Fiscal Year Ended June 30, 2016 Net Pension Net Pension Total Total Liability 1% Liability 1% Deferred Deferred Decrease Increase Outflows Inflows (6.95% Disc Rate) (8.95% Disc Rate) $ 174,887 $ (24,734) $ 1,427,286 $ 900,021 Schedule C Employers Allocation of Pension Amounts as of June 30, 2016 Deferred Outflows of Resources Changes in Proportion and Differences Between Difference Employer Difference Between Contributions Between Projected and Net Expected and Actual Proprtionate Total Employer Pension and Actual Changes in Changes in Investment Share of Deferred Proportion Liability Experience Assumptions Benefits Earnings Contributions Outflows % $ 1,140,614 $ 11,072 $ 25,037 $ - $ 110,255 $ 28,524 $ 174,887 15

26 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT (continued) Deferred Inflows of Resources Changes in Proportion and Differences Between Difference Employer Difference Between Contributions Between Projected and Expected and Actual Proprtionate Total and Actual Changes in Changes in Investment Share of Deferred Experience Assumptions Benefits Earnings Contributions Inflows $ - $ (4,719) $ - $ - $ (20,015) $ (24,734) Pension Expense Recognized Net Amortization of Deferred Amounts from Changes in Proportionate Proportion and Differences Share of Between Employer Pension Plan Contributions and Proportionate Expense Share of Contributions Total $ 118,369 $ 3,732 $ 122,102 Schedule D Employer s Allocation of Recognition of Deferred Outflows/Inflows as of June 30, 2016 Fiscal Year Ending June 30, Thereafter $ 43,414 $ 49,201 $ 38,460 $ 19,078 $ - $ - Schedule E Covered Payroll FY 2016 FY 2015 FY 2014 $ 564,241 $ 495,530 $ 472,922 The schedule of employer allocations and schedule of pension amounts by employer are prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles. The schedules present amounts that are elements of the financial statements of the VSTRS or its participating employers. VSTRS does not issue stand-alone financial reports, but instead are included as part of the State of Vermont's Comprehensive Annual Financial Report (CAFR). The CAFR can be viewed on the State's Department of Finance & Management website at: 16

27 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT (continued) and publications/cafr Plan Description The Vermont State Teachers' Retirement System is a cost-sharing, multiple-employer defined benefit pension plan with a special funding situation. It covers nearly all public day school and nonsectarian private high school teachers and administrators as well as teachers in schools and teacher training institutions within and supported by the State that are controlled by the State Board of Education. Membership in the system for those covered classes is a condition of employment. During the year ended June 30, 2016, the retirement system consisted of 288 participating employers. The plan was created in 1947, and is governed by Title 16, V.S.A. Chapter 555. Management of the plan is vested in the VSTRS Board of Trustees, which consists of the Secretary of Education (ex-officio); the State Treasurer (ex-officio); the Commissioner of Financial Regulation (ex-officio); two trustees and one alternate who are members of the system (each elected by the system under rules adopted by the Board) and one trustee and one alternate who are retired members of the system receiving retirement benefits (who are elected by the Association of Retired Teachers of Vermont). The Pension Plan is divided into the following membership groups: Group A - for public school teachers employed within the State of Vermont prior to July 1, 1981 and who elected to remain in Group A Group C - for public school teachers employed within the State of Vermont on or after July 1, 1990, or hired before July 1, 1990 and were a member of Group B at that time All assets are held in a single trust and are available to pay retirement benefits to all members. Benefits available to each group are based on average final compensation (AFC) and years of creditable service, and are summarized below: 17

28 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT (continued) VSTRS GROUP A GROUP C - GROUP #1* Group C - Group #2++ Normal service retirement Age 60 or 30 years of Age 62 or with 30 years Age 65 or when the sum of eligibility (no reduction) service of service age and service equals 90 Average Final Highest 3 consecutive Highest 3 consecutive Highest 3 consecutive years, Compensation (AFC) years, including unused years, excluding all excluding all payments for annual leave, sick leave payments for anything anything other than service and bonus/incentives other than service actually performed actually performed Benefit formula - normal 1.67% x creditable 1.25% x service prior to 1.25% x service prior to service retirement service x AFC 6/30/90 x AFC % x 6/30/90 x AFC % x service after 7/1/90 x service after 7/1/90 x AFC, AFC 2.0% after attaining 20 years Maximum Benefit Payable 100% of AFC 53.34% of AFC 60% of AFC Post-Retirement COLA Full CPI, up to a maximum 50% CPI, up to a maximum 50% CPI, up to a maximum of 5% after 12 months of of 5% after 12 months of of 5%, minimum of 1% retirement; minimum of retirement or with 30 after 12 months of normal 1% years; minimum of 1% retirement or age 65 Early Retirement Eligibility Age 55 with 5 years of Age 55 with 5 years of Age 55 with 5 years of service service service Early Retirement Reduction Actuarial reduction 6% per year from age 62 Actuarial reduction Disability Benefits Unreduced, accrued benefit Unreduced, accrued benefit Unreduced, accrued benefit minimum of 25% of AFC minimum of 25% of AFC minimum of 25% of AFC Death-in-Service Benefit Disability benefit or early Disability benefit or early Disability benefit or early retirement benefit, retirement benefit, retirement benefit, whichever is greater, with whichever is greater, with whichever is greater, with 100% survivorship factor 100% survivorship factor 100% survivorship factor applied plus children's applied plus children's applied plus children's benefits up to maximum of benefits up to maximum of benefits up to maximum of three concurrently three concurrently three concurrently * Group #1 are members who were within 5 years of normal retirement (age 62 or 30 years of service) on June 30, Group #2 are members who were less than 57 years of age or had less than 25 years of service on June 30, 2010 Members of all groups may qualify for vested deferred allowance, disability allowances and death benefit allowances subject to meeting various eligibility requirements. Benefits are based on AFC and service. Significant Actuarial Assumptions and Methods The total pension liability as of June 30, 2016 was determined by rolling forward the total pension liability as of June 30, 2015 to June 30, 2016 using the actuarial assumptions outlined below. These assumptions were selected on the basis of the experience study that was performed for the five year period ending June 30, The recommended assumption changes based on this experience study were adopted by the Board at its October 29, 2015 Board meeting, and were effective for the actuarial valuation made as of June 30, The 7.95% expected rate of return on assets was adopted by the Board at a meeting on July 27,

29 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT (continued) Interest Rate: 7.95% per annum. Salary Increases: Representative values of the assumed annual rates of future salary increases are as follows: Annual Rate of Age Salary Increase % % % % % % % % % Deaths After Retirement: The 1995 Buck Mortality Tables set back three years for males and one year for females, for retirees, terminated vested members and beneficiaries; the RP Disabled Life Table with projection to 2016 using Scale AA for disabled retirees. The tables used contain a margin to reflect anticipated mortality improvement after the valuation date. Inflation: the separately stated assumptions for investment return, salary increases and cost of living adjustments are consistent with an expected annual inflation rate of 3.00% to 3.25% per year. Spouse's Age: Husbands are assumed to be three years older than their wives. Cost-of-Living Adjustments: Assumed to occur on January 1 following one year of retirement at the rate of 3% per annum for Group A members and 1.5% per annum for Group C members (beginning at age 62 for Group C members who elect reduced early retirement). Inactive Members: A liability equal to 350% of accumulated contributions of inactive members is included in the valuation liabilities. Solely for the June 30, 2016 valuation, this percentage was reduced to 332.5% in recognition of the impact of the school district consolidation program on the demographics of the inactive population. Actuarial Cost Method: The individual entry age normal actuarial cost method was used. For actuarial valuations prior to June 30, 2006, the entry age normal method with frozen initial liability was used. 19

30 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 TEACHER RETIREMENT (continued) Asset Valuation Method: The amount of the assets for valuation purposes equals the preliminary asset value plus 20% of the difference between the market and preliminary asset values. The preliminary asset value is equal to the previous year's asset value (for valuation purposes) adjusted for contributions less benefit payments and expenses and expected investment income. If necessary, a further adjustment is made to ensure that the valuation assets are within 20% of the market value. Member Data: 315 members terminated on June 30, 2016 and retired on July 1, 2016 were included with a valuation status as members receiving benefits. 536 members who were active on June 30, 2016 and terminated on July 1, 2016, were included with a valuation status as inactive. For those terminated members with at least five years of service, the system will automatically vest them six years after their termination if they do not withdraw. Health and Medical Benefits for Retirees: Not included in this valuation. Long-term expected rate of return The long-term expected rate of return on System investments was determined using bestestimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) developed for each major asset class using an econometric model that forecasts a variety of economic environments and then calculates asset class returns based on functional relationships between the economic variable and the asset classes. These best estimate ranges were combined to produce forecasts of the short, intermediate, and longer term horizons by weighting the expected future nominal rates of return by the target asset allocation percentage. The various time horizons in the forecast are intended to capture more recent economic and capital market conditions as well as other plausible environments that could develop in the future over economic cycles. Best estimates of arithmetic rates of return for each major asset class included in the target asset allocation as of June 30, 2016 are summarized in the following table: Long-Term Expected Asset Class Target Asset Allocation Real Rate of Return Equity 35.00% 8.54% Fixed Income 32.00% 2.36% Alternatives 16.00% 8.35% Multi-strategy 17.00% 4.90% Discount rate The discount rate used to measure the total pension liability was 7.95%. The projection of cash flows used to determine the discount rate assumed that contributions will continue to be made in accordance with the current funding policy. Based on these assumptions, the fiduciary net position was projected to be available to make all projected future benefit payments to current System members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 20